Westminster 'bullying' on currency

The UK Government is trying to "bully" Scotland into voting against independence by ruling out a formal currency union, the Scottish Deputy First Minister has said.

Nicola Sturgeon said reports that Chancellor George Osborne would reject any deal that would allow Scotland to leave the UK and keep the pound were a campaign tactic ahead of September's independence referendum.

The Tory Chancellor has already said it is "unlikely" that the rest of the UK would agree to a currency union.

A report last year from the Treasury said: " In the event of Scottish independence, the economic rationale for the continuing UK to enter a formal sterling union with another state is not clear.''

It is now being reported Mr Osborne will go further than that and rule out any such arrangement if there is a Yes vote in the referendum.

It comes after David Cameron said yesterday that Mr Osborne would be "discussing this later in the week".

The Prime Minister said it " would be very difficult to justify a currency union post-independence" and added: " I think it's important we set out these arguments in a very clear and rational way.

"It's a very important issue for people in Scotland to understand that this is an argument we are going to make on the basis of economic evidence and advice, not on any a priori views.

"The Chancellor will have more to say about this later."

Ms Sturgeon hit back at claims in the Guardian that Mr Osborne, his Labour shadow Ed Balls and Liberal Democrat Chief Secretary to the Treasury Danny Alexander are all set to rule out a currency union with an independent Scotland.

"People won't take kindly on the Westminster establishment ganging up to bully Scotland in the decision we're being asked to take on the referendum," the Deputy First Minister told BBC Radio Scotland's Good Morning Scotland programme.

She claimed this showed the " Westminster establishment trying to gang up on Scotland because they see it in the polls that they are losing the argument" over Scotland's future.

Ms Sturgeon also said it would be "absurd" for UK politicians to reject a currency union, saying this stance would damage businesses south of the border and impact on UK debt levels.

The Scottish Government has set out plans to retain the pound if people vote for independence, creating a ''sterling zone'' with the rest of the UK.

Economics experts in the Fiscal Commission Working Group, set up by Scottish First Minister Alex Salmond, have backed this, saying that keeping sterling as the currency in an independent Scotland is ''sensible'' and an attractive choice for the rest of the UK.

Ms Sturgeon said today that ruling out a deal on currency would be "an absurd position for any Westminster government to be in", adding this would "cost their own businesses hundreds of millions in transaction costs, it would blow a massive hole in their balance of payments, it would leave them having to pick up the entirety of UK debt".

She added: " This is a position that makes no sense. It is a tactical position for the purposes of a campaign in which their whole approach is to stir up fear and uncertainty."

The Deputy First Minister said: "No matter what the No campaign, the Westminster establishment, says now, the reality will be very, very different if Scotland votes Yes.

" We have set out a reasonable case that we, Scotland, should continue to use our pound, because it is our pound as much as anybody else's.

"For all of the reasons I have set out, the position that a UK government would turn its back on a currency union doesn't bear scrutiny. It would be a move that would be completely against the interests not just of Scotland but the rest of the UK.

"It's a campaign manoeuvre, it's posturing, it's a tactic, and what they say now on currency will be very different to what they say after Scotland votes Yes.

"People can see the sense of the position we're putting forward, for Scotland and the rest of the UK, and they know this is a rather cack-handed, panicky campaign manoeuvre."

When pressed on whether the Scottish Government had a plan B if it failed to get a deal on a currency union, Ms Sturgeon would only say: " I'm not going to be bullied out of the right position for Scotland and the rest of the UK."

Stewart Hosie, the SNP's Treasury spokesman in Westminster, indicated that a refusal to reach a deal on sterling could result in Scotland not accepting a share of the UK's national debt.

He told BBC Radio 4's Today programme: "The UK Government themselves two weeks ago when they made their announcement said that the debt was UK debt and they had to honour it. Now we are perfectly happy to service and pay our share of that but the discussions on the liabilities, including the national debt, go hand in glove with the assets, which includes the Bank of England and a currency union. And George Osborne can't have it both ways."

He too accused the Chancellor of "bullying" tactics.

"It's bullying, it's panic in the No campaign, it's utterly bizarre and it will backfire," he said.

"This is pure politics and George Osborne has got it wrong."

Ruling out a currency union would have an "immediate impact on sterling balance of trade" and "put transaction costs on £60 billion of trade that flows from the rest of the UK, mainly England, into Scotland, with a commensurate loss of jobs", Mr Hosie claimed.

If no deal could be reached on a formal currency union with the rest of the UK, an independent Scotland could still use the pound as its currency.

Sam Bowman, research director at the Adam Smith Institute think-tank said: " An independent Scotland would not need England's permission to continue using the pound sterling, and in fact would be better off using the pound without such permission.

"There is very little that an English government would actually be able to do to stop Scottish people from continuing to use the pound sterling if they wanted to."

He added: " Scotland's position would be closer to that of countries like Panama, Ecuador and El Salvador, which use the US dollar without American 'permission', and, according to research by the Federal Reserve of Atlanta, consequentially have far more prudent and stable financial systems than if they were part of a formal currency union.

"An independent Scotland that used the pound as its base currency without the English government's permission, with banks continuing to issue notes privately and private citizens free to choose any currency they wanted, would probably have a more stable financial system and economy than England itself."

He concluded: " It's up to Scots to decide whether they want independence, but the Chancellor's announcement today should be seen as a feature, not a bug."

Mr Cameron's official spokesman confirmed that the Chancellor will make a speech on the independence debate tomorrow, but declined to say whether Mr Osborne would rule out the possibility of currency union.

Asked whether the official policy was shifting to a position that Scotland would not be able to keep the pound, the PM's spokesman said: "The position is as the Government has been setting out in terms of the analysis paper that's been previously published."

Responding to Ms Sturgeon's complaints of bullying, Mr Cameron's spokesman told a daily Westminster media briefing: "It is not the first time I have found the Scottish Government's approach rather puzzling. I doubt it will be the last between now and September.

"It is the Scottish Government that wants to leave the United Kingdom. What the Prime Minister and others are doing is making - and will continue to make - the strong positive case why we are better together."

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